About the Executive Summary

The Following executive summary is from a note by the Staff of the IMF prepared for the March 13-14, 2009 meeting in London of the Group of Twenty Ministers and Central Bank Governors. Read the Full text

Executive Summary

According to the latest IMF forecast, global activity is expected to decline by around ½ to 1 percent
in 2009 on an annual average basis, before recovering gradually in the course of 2010.

Turning around global growth will depend critically on more concerted policy actions to stabilize
financial conditions as well as sustained strong policy support to bolster demand.

Restoring confidence is key to resolving the crisis, and this calls for tackling head-on
problems in the financial sector. Policymakers must resolve urgently balance sheet uncertainty by
dealing aggressively with distressed assets and recapitalizing viable institutions.

Since financial market strains are global, greater international policy cooperation is
crucial for restoring market trust. Monetary policy should be eased further by reducing policy rates
where possible, and supporting credit creation more directly.

Delays in implementing comprehensive policies to stabilize financial conditions would result in a
further intensification of the negative feedback loops between the real economy and the financial
system, leading to an even deeper and prolonged recession.

Two additional issues will have a significant impact on the outlook: the effectiveness of the fiscal
policy response to the crisis; and external financing risks and banking sector vulnerabilities in
emerging economies.

The estimated growth and employment effects from the fiscal stimulus announced so far,
including from the operation of automatic stabilizers, are estimated to be large. Discretionary
fiscal stimulus being provided by G-20 countries is sizeable, but falls short of the 2 percent of
aggregate GDP in 2009 and 2010 recommended by the Fund, particularly in 2010. Given the likely
protracted nature of the downturn, countries with fiscal room should plan to sustain stimulus in
2010.

Upfront government financing needs related to financial sector support are sizeable, but
this support is critical to stabilize the financial system and for restoring confidence. At the same
time, reinforcing fiscal credibility is paramount. Thus, fiscal support needs to be anchored by a
sustainable medium-term fiscal framework.

Capital account pressures are intensifying for many emerging economies, amidst a
contraction in cross-border lending. Some governments may have to support domestic corporates
unable to raise financing to fulfill their rollover needs. Emerging economy banks, especially in
emerging Europe, may need to be recapitalized in view of prospective losses. As the crisis
prolongs, an increasing number of emerging economies will find room for policy maneuver
becoming increasingly limited. Large-scale official support is likely to be needed from bilateral and
multilateral sources.